This month’s statistics show that the UK employment rate has slightly increased to 74.9% on the quarter and on the year. Due to the Labour Force Surveys’ sampling issues, we must remain cautious in how we interpret such changes.

Wage growth has remained strong, with regular pay (excluding bonuses) growing by 5.9%. Once we have taken inflation into account, this translates to a real term wage increase of 2.5%. However, ONS figures released last week showed that GDP per head, or the basket of goods and services a person can buy which broadly represents living standards, had fallen on the year. This suggests that despite continued wage growth, many people will fail to see the benefit in their wallets.

At the same time, unemployment has increased by 0.1 percentage point on the quarter to 4.4% for people aged 16+. This increase is likely in part the result of a fall in the number of people who are out of work and not looking for work, also termed economically inactive. We have a slight drop in economic inactivity as some people have entered the labour market and have started to actively look for work.

Rise in unemployment partly driven by young people

There are now over 200,000 more people in unemployment than a year ago, with the majority of this rise (64% / 136,000) accounted for by those aged 16-24. This is not necessarily concerning. For some people it can be a good news story, as students leave higher and further education to enter the labour market for the first time. For many who look for their first role, this can take some time. For that reason, the unemployment rate tends to be higher among young people than older people as highlighted in the figure below. At the same time, we may also be seeing the effect of young people being at greater risk of losing their jobs. Regardless of the reason for unemployment, it can have negative repercussions on young people.

In the coming period, it will be key for policymakers to monitor not just the levels of youth unemployment but also the duration spent looking for work. Being out of work for a sustained period can harm young people’s mental and physical health and can reduce their prospects of getting a good quality, secure job and can impact their future earning potential.

Figure 1: Change in unemployment rates by age group, 2023-2024

Source: Work Foundation estimates using Office for National Statistics Dataset A01: Summary of labour market statistics. Table 9: Unemployment by age and duration: People (seasonally adjusted). Released 18 February 2025.

Reduced appetite for hiring particularly in sectors employing young workers

There are some early indications that the landscape may remain challenging for young workers over the course of 2025. Vacancies have continued to fall and are now approximately back at pre-pandemic levels. This is not inherently problematic, however, the biggest fall in vacancies on the year is in wholesale and retail (-29,000), health and social care (-24,000) and accommodation and food (-21,000). These sectors are more likely to provide lower paid work and are therefore more vulnerable to the rise of the National Minimum Wage and the National Living Wage announced in the October Budget and coming in April 2025. Retail and accommodation and food are particularly sectors which employ many young workers, and a reduction in hiring appetite may make it more difficult for some young jobseekers to obtain work.

However, it is important to note that although we know prolonged periods of unemployment are damaging, sometimes low-quality and insecure jobs can be just as damaging. Workers aged 16-24 are 2.2 times more likely than older aged workers to be in severely insecure work, which means they have unpredictable pay, uncertain contracts and lack access to employment rights and protections. Although many young workers will move on from these insecure entry jobs, a significant minority of workers remains stuck in insecurity for long periods of time.

We should therefore have a dual focus on reducing the duration of unemployment at the start of workers’ careers as well as ensure that the jobs they take up are of a decent standard and provide the security that young workers’ need to start their lives.

Heading into spring: employer’s intentions and Government policy

In addition to the increase to the wage floor, April 2025 will also see the introduction of additional Employer National Insurance Contributions, which may put extra pressure on businesses - particularly those with lower profit margins.

As CIPD’s employer survey reported this week, a third (32%) of employers were planning to respond to these rising costs through redundancies or recruiting fewer workers. The Bank of England had already reported in December that many businesses were planning to pass on the costs of the tax rise and higher staff costs either to consumers by raising the prices of their products or services, or by reducing staff or hours.

These are only ‘reported intentions’ and any predictions often fall short of reality and as such may not form a suitable base for policy decisions. In some cases, a reported intention may reflect the actual business strategy. In other cases, however, these polls may be used as a voice piece for employers to pressure Government to lighten the load. What is certain is that the changes in the headline labour market figures must be closely monitored in the period ahead.

Heading into spring with very limited fiscal headroom, it is key Government remain committed to delivering the Employment Rights Bill — which will raise the bar on work standards and create a better labour market for young people to enter into. They must also prioritise the measures proposed in the Get Britain Working White Paper to support young people to take up apprenticeships, gain work experience and access the right training and support for a positive start to the rest of their working lives.

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